Copyright (c) 1997, Roanoke Times

DATE: Monday, March 10, 1997                 TAG: 9703120013
SECTION: MONEY                    PAGE: 6    EDITION: METRO 


Q: My brother died in the Midwest last February. He was a widower with no children and left all of his property to two heirs by designating stocks, bonds, CDs and real property by joint ownership with right-of-survivorship or pass-on death to one of his heirs.

The estate tax return has been prepared. Both heirs have received 1099s in their names and SSNs. 1090s also have been received in our brother's name and SSN.

The attorney (in the Midwest) is now preparing my brother's 1996 income tax return, which he titled "estate tax return." He has asked each heir to forward all 1099s, which will be used to prepare the "estate" income return for 1996.

From our understanding of tax procedures this will create income tax problems for each heir as our 1996 income tax returns will not include 1099 income reported in our name and SSN. Under the prepared procedures, we could expect problems with the IRS as a comparison of our return with 1099 in our names would reveal "unreported income" although the income would have been reported in our brother's 1996 tax return.

Is the proposed procedure the correct way to report income for each heir and our brother or should our income tax returns be prepared listing income as reported in the 1099s? If the proposed procedure is correct, how should we handle expected IRS audits?

A: As I understand it, your brother died in February 1996, leaving you and a sibling as the only heirs to his property. Your brother set up income-producing accounts, which he funded, as joint with right of survivorship so that upon his death the accounts would pass to you or your sibling.

While 1099s should have been issued in your brother's name for the period of the year he was alive and other l099s issued to the survivors for the rest of the year, quite often you have the situation you describe. While you can request corrected Forms 1099, this often is difficult and time-consuming.

The primary concern is to have the income reported correctly on the proper return. Income earned by your brother until his death would be included on his final individual income tax return; income after that would be reported on the income tax return of the recipient, i.e., you and your sibling.

IRS publication 559 addresses this situation. If you have received the Form 1099 in your name, report the total income on Schedule B of your Form 1040 (assuming this is for interest or dividends). Add to this the income reportable from other sources for which you did not receive Form l099s in your name (the attorney should provide this to you, because it appears he is filing your brother's final return). Enter a "subtotal," then show any interest in your name but belonging to someone else separately, and subtract it from the subtotal (be sure to designate what this is for). If all parties involved follow this procedure, the returns should reflect properly reported income.

-Answered by Terrence Clem of Miller, Morgan, Agee & Clem

LENGTH: Medium:   56 lines

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